Sean Callow, analyst at Westpac, points out that the RBA statement sparked a bounce to 0.6710/15, presumably reflecting the 10% chance of a rate cut implied by money markets and language that reiterated the easing bias but offered no specific hint about when another move might come.
“The market turmoil of the past month, mostly driven by a deterioration in US-China trade relations, was barely evident in the discussion of the global economy. Governor Lowe repeated August’s observation that, “The Australian dollar is at its lowest level of recent times.” Last week Deputy Governor Debelle said that further depreciation would be helpful.”
“Looking forward, markets will continue to price another RBA rate cut before year end but even before the next RBA meeting we should see the Fed lower rates again. Indeed yield spreads have moved back in AUD’s favour over the past month as trade wars are judged to have greater implications for the Fed than the RBA with the cash rate already at 1%.”
“With iron ore prices on track to recover some more lost ground, spec positioning firmly short AUD and resource company dividend payments to Australian shareholders due in the next couple of weeks, AUD/USD should continue to find buyers on dips under 0.6700. But the global mood seems too risk-averse for rallies to extend beyond the 0.6780/90 area near term.”